Wheeler Says Broadband Competition ‘Lacking,’ Lays Out Agenda

Wheeler, speaking Thursday (http://fcc.us/1u4u3Ws) at 1776, a startup incubator firm, laid out a broad agenda of principles he said were meant to “cut across all the specific policy issues,” but gave no specific policy positions. An FCC official told us afterward the principles are intended to “serve as a guide.” Though some observers said Wheeler’s remarks signaled he’s likely to support petitions to pre-empt anti-municipal broadband laws, and gave hope to some opponents of the proposed Comcast/Time Warner Cable deal, the official said the muni broadband petitions will be addressed “on a case-by-case basis, based on the fact and laws specific to each.” The official also e-mailed that “nothing in the speech is intended to send a signal about how the Commission will approach the mergers currently under review.”

Wheeler’s remarks set off a reading of tea leaves. Wheeler signaled “where his heart is” and that he sympathizes with the pre-emption petitions filed by Wilson, North Carolina, and the Electric Power Board in Chatanooga, Tennessee, said Recon Analytics analyst Roger Entner. Wheeler referred to the petitions to illustrate one of the principles -- to provide competition in areas where it’s not available -- but stopped short of endorsing them, saying only that furthering the principle is “why we are looking at that question closely.” Based on the remarks, former FCC Chairman Reed Hundt drew the conclusion that the agency will move to pre-empt the laws.

One industry source said the speech is the beginning of laying out a “road map” to addressing competition. FCC officials have told her “more to come,” and she expects Wheeler to lay out more at several upcoming trade shows.

"The Chairman appears to be laying the groundwork for certain policy decisions,” ITTA President Genny Morelli emailed us. She also said it seemed “likely” Wheeler will move ahead with pre-emption, as well as redefining broadband as 10 Mbps rather than 4 Mbps, as the agency asked in its August notice of inquiry on whether broadband is being deployed in a timely and reasonable fashion as called for under Communications Act Section 706.

Wheeler said that “it’s not acceptable” that more than 40 percent of Americans don’t have 10 Mbps connections. Wheeler didn’t mention Comcast/TWC, but “his emphasis on the need for greater competition ... gives us and others who oppose the transaction hope that the Commission will conclude that the deal will impede competition and is not in the public interest,” Morelli said. BTIG analyst Richard Greenfield said in a note to investors that Wheeler appears to want to increase the speed threshold.

Guggenheim Partners analyst Paul Gallant in a note said he doubts Wheeler “intended his remarks to be a negative signal on this merger.” The review of the deal will still turn on the merged company’s bradband power.

Four Principles

Saying his mantra since taking office has been “competition, competition, competition,” Wheeler said the commission will protect competition where it exists. He cited the commission’s opposition to shrinking the number of nationwide wireless providers from four to three, and said the IP transition test order “starts with the belief that changes in network technology should not be a license to limit competition.” Hundt wondered if raising the idea of protecting competition implied that “the FCC will seek to impose pro-competitive conditions on any approval of the Comcast, Charter and AT&T acquisitions? And what would those pro-competitive conditions be?"

As a second principle, Wheeler said the commission will encourage competition where it can exist, citing the broadband spectrum auction as a way to “provide opportunities for wireless providers to gain access to important low-band spectrum that could enhance their ability to compete.” The open Internet proceeding “is about ensuring that the Internet remains free from barriers erected by last-mile providers,” Wheeler said. The commission will encourage “meaningful competition” where it does not exist, he said. The agency’s efforts to “expand the amount of unlicensed spectrum creates alternative competitive pathways,” he said. “We understand the petitions from two communities asking us to pre-empt state laws against citizen-driven broadband expansion to be in the same category, which is why we are looking at that question so closely."

The agency must “shoulder the responsibility” of promoting broadband deployment in areas where competition can’t be expected to exist, Wheeler said. “We cannot allow rural America to be behind the broadband curve."

Wheeler referred to the current definition of broadband of 4 Mbps, as “yesterday’s broadband.” Even the 10 Mbps standard proposed by the FCC “doesn’t fully capture the increasing demand for better wired broadband,” he said, noting it’s “not uncommon” for a household to have six or more connected devices -- including TVs, desktops, laptops, tablets and smartphones: “When these devices are used at the same time, as they often are in the evenings, it’s not hard to overwhelm 10 Mbps of bandwidth.” Despite the need, “the reality we face today is that as bandwidth increases, competitive choice decreases,” Wheeler said.

To promote broadband, Wheeler said, “incentivizing competition should precede regulation.” He said “regulation, even when necessary, imposes costs,” and “especially in a fast-moving sector, it is important that companies be free to develop better networks and to attract the investment necessary to do so.” He said that “no company should be held immune from the competition that drives such investment.” No company “should be protected from public interest obligations, especially where meaningful competition is not present,” he said. Asked to elaborate on Wheeler’s approach, the FCC official who spoke on background said only that the chairman’s remarks were in one of several speeches Wheeler will be giving in the coming weeks “on the importance of competition, innovation and consumer protection in the evolving broadband ecosystem."

To Entner, Wheeler’s references to muni broadband and promoting high-speed broadband in areas where it does not exist suggest an “interventionalist approach.” Wheeler “fundamentally has a dimmer view than do I of the extent to which competitive forces, driven by ongoing technological changes, have increased and continue to increase in the marketplace,” Free State Foundation President Randolph May told us. “The flip side of what I see as Chairman Wheeler’s glass-half-empty pessimistic view of marketplace competition is an overly optimistic view of his ability to create more competition by too much regulatory intervention. “Gallant saw the reference to higher costs as a sign Wheeler still prefers a Section 706 approach on net neutrality.

Public Knowledge Senor Vice President Harold Feld hailed the speech, in a statement. “People say the first step to recovery is admitting you have a problem. Today, Chairman Wheeler becomes the first FCC Chairman to acknowledge what American businesses and consumers have known for a very long time -- we are not getting the broadband speeds we need at prices we can afford,” he said. Saying that after identifying the problem, “now we need to see the cure,” Feld said the agency should oppose Comcast/TWC. “We don’t see how allowing any further consolidation of the broadband market can possibly make broadband better, as Comcast and AT&T have claimed,” Feld said. A Comcast spokeswoman declined to comment.

Consumers Union referred to Wheeler’s remarks in urging rejection of Comcast/TWC. “If the FCC allows the Comcast merger to happen, the problems cited by Chairman Wheeler would only get worse,” said Delara Derakhshani, policy counsel for Consumers Union, in a statement.

Wheeler’s call for competition, “is an important mindset not just for the Universal Service Fund, but for the FCC to take into its review of mega-mergers like Comcast-Time Warner Cable,” Free Press Policy Director Matt Wood said in a statement. “That deal needs to be blocked. It would give Comcast a stranglehold on our nation’s advanced broadband market and gatekeeper power over the entire Internet economy. ... The real proof will be in the agency’s actions and not just its speeches.” The agency “should start by actually collecting and better analyzing data on broadband competition and pricing -- information the big ISPs have been so reluctant to turn over to the agency and to independent researchers studying this issue,” Wood said.

Wheeler “made it clear that competition policy will not be abandoned as we move into the IP future,” Broadband Coalition spokesman Jeff Sharp said in a statement.

To NCTA, Wheeler’s remarks “underscore the importance of maintaining a light regulatory touch that encourages more investment from more companies. The surest way to stifle further competition and investment in the broadband marketplace is to impose public utility Title II regulation on Internet access,” said the association in a statement. Under light regulation, NCTA said the cable industry has invested more than $210 billion since 1996 to provide broadband to 93 percent of all customers and networks capable of 100 Mbps or higher to 85 percent of U.S. homes.

AT&T agrees with Wheeler about the need for faster and better broadband and has invested nearly $119 billion to provide wired and wireless broadband, said Jim Cicconi, senior executive vice president-external and legislative affairs, in a blog post (http://bit.ly/1AbbgsF). Comptel agreed with Wheeler’s statement that “’the exercise of uncontrolled last mile power is not in the public interest,'” and called for “policies that promote competition and access to the customer via the last mile."

Wireless Subpar?

Wheeler also touched on wireless. “We have great hopes for wireless as a potential substitute for fixed broadband connections,” Wheeler said. “But today it seems clear that mobile broadband is just not a full substitute for fixed broadband, especially given mobile pricing levels and limited data allowances."

Wheeler said the commission’s insistence on four national wireless carriers was an example of the agency protecting competition where it already exists. Under Julius Genachowski, the FCC blocked AT&T’s buy of T-Mobile, while on his watch, regulator objections led Sprint to drop its pursuit of T-Mobile.

"This is about as clear a message you can get that a four-to-three merger won’t get FCC approval,” said Armand Musey, managing director at business valuation firm Goldin Associates. But Musey said terrestrial and satellite wireless broadband has emerged as a substitute for wireline, especially in the rural areas where he bemoans the lack of competition.” Wireless won’t compete with gigabit fiber in Kansas City, “but it can compete with a lot of rural DSL services,” Musey said.

"Americans value the unique benefits of mobile broadband, with a world-leading 112 million LTE connections and with consumer usage expanding exponentially,” said CTIA President Meredith Baker. CTIA supports Chairman Wheeler’s calls for the development of new and improved technologies, she said. “The most effective way to achieve that it is to reallocate additional spectrum for commercial mobile broadband use,” she said. “As the chairman noted today in his remarks, wireless is different, which should be reflected in future FCC policies in order to facilitate expanded mobile competition and innovation."

Wheeler’s comments are not a surprise, said a former FCC spectrum official who represents wireless clients. “Over the past several years, the FCC describes wireless as ‘dynamic, life-enhancing, and highly competitive’ when that description suits the FCC’s particular agenda,” the lawyer said. “When it doesn’t, the FCC is quick to describe wireless as sub-par or just not measuring up -- whether as compared to fixed broadband domestically or to the so-called amazing wireless offerings everywhere else but in the U.S.”

A former FCC legal adviser without wireless clients said Wheeler’s remarks were likely aimed elsewhere than at the wireless industry. “His 25-Mbps refrain was a heat seeking missile directly into the middle of the Comcast/Time Warner Cable merger debate,” the former official said. Wheeler made clear “in no uncertain terms, that he doesn’t view anything other than fiber as a competitor to Comcast,” said the ex-official. “No DSL, no 5 Mbps, no wireless. That does not bode well for those supporting the cable merger.”,